VZCZCXYZ0000
RR RUEHWEB

DE RUEHMU #0694/01 1952006
ZNR UUUUU ZZH
R 142006Z JUL 09
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 4340
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUMIAAA/CDR USSOUTHCOM MIAMI FL
RUEAIIA/CIA WASHINGTON DC
RHEHNSC/NSC WASHDC
RHEFDIA/DIA WASHINGTON DC

UNCLAS MANAGUA 000694 
 
STATE FOR WHA/CEN, EB/IFD/OIA AND L/CID 
STATE FOR WHA/EPSC 
STATE PLEASE PASS TO USTR 
TREASURY FOR INL AND OWH 
DEPT FOR USAID 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EINV ECON USTR KIDE NU
SUBJECT: NICARAGUA SECTION 527 WAIVER OBSERVATIONS 
 
REFS: A) 08 MANAGUA 1546, B) 08 MANAGUA 354, C) 02 MANAGUA 877, D) 
MANAGUA 160, E)(C) 08 MANAGUA 1084, F) MANAGUA 659, H) 08 MANAGUA 
002, I) MANAGUA 313, J) MANAGUA 244, K) 08 MANAGUA 1120, L) MANAGUA 
602, M) 08 MANAGUA 830, N) 08 MANAGUA 724, O) 08 MANAGUA 564, P) 
MANAGUA 344, Q) MANAGUA 235, R) MANAGUA 465, S) 08 MANAGUA 542 
 
¶1. (U) This cable contains an action request in Paragraph 23. 
 
SUMMARY 
------- 
 
¶2. (SBU) Post recommends that the Secretary issue an annual waiver 
to Section 527 of the Foreign Relations Authorization Act of 
1994/1995 for the Government of Nicaragua (GON).  Between August 1, 
2008, and June 30, 2009, the GON resolved 43 Embassy-registered 
claims for 31 U.S. citizens, including 12 claims previously 
dismissed under Decrees 3 (1979) and 38 (1979).  While this number 
is well below the historical average, it does slightly exceed last 
year's total of resolved claims. 
 
¶3. (SBU) Genuine cooperation on advancing U.S. claims remains 
somewhat limited as some GON policies inhibit our efforts on case 
resolution.  Nonetheless, Nicaragua achieved the resolution of U.S. 
citizen claims according to all three benchmarks.  GON cooperation 
with the Embassy improved after the December 2008 bilateral review 
of the government's property claims resolution process.  Indeed, the 
establishment of the Liaison Office for U.S. Claims has increased 
communication between the Embassy Property Office and the GON.  In 
addition, GON officials are reviewing final settlement offers that 
some claimants consider inadequate.  We believe that granting a 
waiver to Nicaragua will keep the GON engaged in working with us to 
resolve U.S. citizen claims.  It will also allow us to continue our 
strategy of engagement with Nicaragua on issues important to us, 
including trade and investment under CAFTA-DR, our economic and 
social development assistance programs aimed at improving the lives 
of the Nicaraguan people, productive relations with professional 
military and police forces, and progress on the war on drugs and 
combating terrorism. 
 
¶4. (SBU) In addition to sending a letter to the Foreign Minister 
announcing this year's waiver decision and establishing benchmarks 
for the following year, we propose a formal mid-year review of the 
GON's progress during the 2009-2010 waiver year.  This review could 
include a visit by Department officials to maintain direct pressure 
on the GON to resolve U.S. citizen claims and convey USG interest in 
this topic.  We suggest that a senior WHA official communicate the 
results of the mid-year review in writing [See action request in 
Paragraph 23]. 
 
2008-2009 WAIVER YEAR BENCHMARKS 
-------------------------------- 
 
¶5. (SBU) In her July 29, 2008 letter to Foreign Minister Santos, 
then-Secretary of State Condoleezza Rice enumerated three benchmarks 
for granting a waiver in 2008: 1) successful resolution of a 
substantial number of Embassy-registered claims; 2) resolution of 
property claims controlled by the Nicaraguan government, including 
the "Corporacion Nacional del Sector Publico," (CORNAP, the 
government's asset holding company); and 3) resolution of property 
claims against the Nicaraguan Army.  The former Secretary also 
called for a bilateral review of the processes and procedures by 
which the GON had dismissed many claims under Decrees 3 and 38 or 
for administrative reasons, such as a lack of proof of ownership 
and/or property that had been confiscated. 
 
BILATERAL REVIEW SETS TONE FOR COOPERATION 
------------------------------------------ 
 
¶6. (SBU) In December 2008, a U.S. Government (USG) delegation 
visited Managua to conduct a bilateral review of the GON's property 
claims resolution process (Ref A).  USG officials discussed several 
issues that limited progress on case resolution.  One topic was the 
dismissal of U.S. citizen claims without fair and transparent due 
process.  The delegation also addressed complaints that the GON 
failed to calculate settlement offers in a transparent manner.  In 
response, Estrada agreed to update the Attorney General Office's 
website with information about the claims resolution process. 
 
¶7. (SBU) The delegation expressed concern that the GON had not 
resolved claims under the Army's control.  They addressed concerns 
that the Attorney General was siding against U.S. claimants in some 
court cases.  In response, the Attorney General agreed to create two 
separate commissions, one to review claims under government control, 
including the Army, and another to review claims that languish in 
the courts.  Finally, USG officials sought to improve the 
communication between the Embassy Property Office and GON to resolve 
claims.  Attorney General Estrada responded by establishing a 
liaison office to handle U.S. claims. 
 
GON RESOLVES 43 U.S. CITIZEN CLAIMS 
----------------------------------- 
 
¶8. (U) The GON achieved some progress toward the first benchmark. 
Between July 29, 2008, and June 30, 2009, the GON resolved 43 U.S. 
citizen claims belonging to 31 U.S. citizens registered with the 
Embassy.  One U.S. citizen claimant also withdrew a claim registered 
with the Embassy because he concluded that he could not provide 
sufficient documentation to support it.  Twelve of the 43 claims 
resolved by the GON had been previously dismissed under Decrees 3 
and 38 (Ref B).  As of June 30, 2009, 278 U.S. citizens await the 
resolution of 582 Embassy-registered claims. 
 
¶9. (U) On the second benchmark, the GON resolved two U.S. citizen 
claims under the control of the Nicaraguan National Police (NNP). 
One claimant received bonds as compensation while the other agreed 
to lease his property in Jalapa to the NNP.  On the third benchmark, 
the GON resolved one claim under the control of the Army.  In 
February, the municipal court in Masaya evicted a former Army 
officer from property owned by a U.S. citizen (Ref B). 
 
PROPERTY INDEMNIFICATION BONDS (BPIs) 
------------------------------------- 
 
¶10. (SBU) The GON typically compensates U.S. citizens for 
confiscated or expropriated property with low-interest, long-term 
property indemnification bonds (BPIs).  Between July 29, 2008, and 
June 30, 2009, the GON compensated 40 U.S. citizen claims belonging 
to 28 U.S. citizens via BPIs issued with a face value of 144,051,300 
cordobas, approximately $7,077,575.  A thin secondary market exists 
for the sale of these bonds, the current price for which ranges 
between 37 and 53 cents on the dollar.  During this waiver year, the 
GON returned property to a U.S. claimant and also conducted a land 
swap for another property of comparable value. 
 
SELECTED CASE HIGHLIGHTS 
------------------------ 
 
¶11. (SBU) Post continues to encourage the GON to settle claims 
during the remainder of July 2009.  A few high profile cases are 
close to resolution, such as the claims of U.S. citizens Juan 
Barreto and Domingo Calero.  Mr. Barreto has 28 claims filed with 
the Embassy for property under the control of the Army (Ref C).  Mr. 
Calero has four claims that have received significant U.S. 
congressional attention (Ref D).  Cases listed below represent a 
sample of resolutions achieved between July 29, 2008, and June 30, 
¶2009.  Their full documentation confirms eligibility for Section 527 
waiver consideration for the period July 29, 2008, to July 28, 2009. 
 All dollar figures have been calculated using the official exchange 
rate at the time of compensation. 
 
A) Senfeld, Norman: Claimant received bonds with a face value of $5 
million to settle three claims (Ref E).  He received $2.5 million in 
bonds in September 2008.  He should receive the balance in 
September. 
 
B) Perez-Rios, Roberto: Claimant received BPIs with a face value of 
$6845.59 for a 500 square foot lot in Masaya that was under the 
control of the police. 
 
C) Alvarez, Maria: Claimant regained possession of her property 
after the municipal court in Masaya evicted a former Nicaraguan Army 
officer who had control of it.  She was a U.S. citizen at the time 
of confiscation. 
 
D) Hidalgo, Elmer: Claimant signed a lease with the NNP in Jalapa. 
The police agreed to pay Mr. Hidalgo monthly rent of $100.  The 
lease is for one year and can be extended for an additional six 
months. 
 
E) Conrado, Inesyvonne: Claimant received a land swap from the GON. 
Her coffee plantation in Matagalpa had been confiscated in 1979 and 
sold to a third party. 
 
PROBLEMS REMAIN DESPITE PROGRESS 
--------------------------------- 
 
¶12. (SBU) Despite Nicaragua's progress in resolving claims according 
to all three Section 527 benchmarks, and improved communication 
between the Embassy and GON, a number of government policies 
complicated the resolution of U.S. citizen claims during the waiver 
year.  These policies, if left unchanged, will likely continue to 
inhibit our efforts to work with the GON on case resolution.  The 
establishment of the Liaison Office for U.S. Claims in December 2008 
has improved communication between the GON, the Embassy, and U.S. 
claimants on casework.  GON officials are also reviewing final 
settlement offers that some claimants consider as inadequate 
compensation.  However, genuine cooperation on advancing U.S. claims 
remains limited.  The GON continues to assert its goal of resolving 
all claims by 2011 (Refs F, G).  We have reminded GON officials that 
the U.S. Government considers claims resolved only when claimants 
believe that they have received adequate and effective compensation. 
 
 
DISMISSED CLAIMS REMAIN PROBLEMATIC 
------------------------------------ 
 
¶13. (SBU) As of June 30, 2009, Attorney General Estrada had 
dismissed 134 Embassy-registered claims, including 48 for 
administrative reasons and 86 based on Decrees 3 and 38.  During his 
March 12 meeting with Estrada, the Ambassador persuaded him to 
review 70 U.S. citizen claims previously dismissed to determine 
whether they could be resolved favorably (Ref H).  During a June 12 
interview on a Nicaraguan television talk show program, however, 
Estrada claimed that there are over 190 U.S. claims on the Section 
527 waiver list that are subject to Decrees 3 and 38 (Ref I).  In 
addition, the National Confiscations Review Commission (CNRC), which 
is responsible for determining if property claims against the 
government are legitimate for compensation, attempted to nullify two 
previously resolved U.S. citizen claims (J).  Attorney General 
Estrada reversed the CNRC's nullifications and pledged to respect 
all previously resolved claims. 
 
LIMITED PROGRESS ON ARMY-CONTROLLED PROPERTY 
-------------------------------------------- 
 
¶14. (SBU) The GON has made only very limited progress resolving 
claims under the control of the Army.  While a lower court ruled in 
February that a former Army officer return a house to a U.S. 
claimant, the Army and the Army Social Security Institute (IPSM) 
still control 36 properties claimed by U.S. citizens.  High-ranking 
military officers continue to occupy some of these residences. 
After the bilateral review in December 2008, Attorney General 
Estrada created an interagency committee to work on claims for 
property under control of the government, including the Army, and in 
particular the 28 claims of U.S. citizen Juan Barreto.  However, 
this committee has not resolved any claims under the control of the 
Army.  On July 1, Estrada told the Ambassador that the Barreto case 
would unlikely be resolved this waiver year. 
 
CLAIMS IN COURT 
--------------- 
 
¶15. (SBU) Under Nicaraguan law (Law 278/1997), the Attorney General 
is required to pursue the return of property that was not 
confiscated under statutes 85/1990 and 86/1990, also known as the 
"pinata" laws.  In August 2008, Attorney General Estrada announced 
that his office would no longer provide that support (Ref K).  In 
fact, on three occasions, the Attorney General's Office withdrew a 
petition filed with a local court in support of a U.S. claimant and 
instead filed a petition on behalf of the illegal occupants. 
 
RESOLUTION OF CLAIMS THROUGH OFFICIAL PUBLICATION 
--------------------------------------------- ------ 
 
¶16. (SBU) In July 2008, the GON began to regard as resolved cases 
for which it had published notice of compensation in the Official 
Gazette and deposited BPIs in escrow (Refs L,M, N).  A total of 25 
U.S. citizens, including one claimant whose case was being decided 
in the court system, have been affected by this measure (Ref O). 
GON officials argue that these claimants had exhausted recourse 
through the administrative process and should file their cases with 
local courts if they disagree with the compensation offered.  On May 
22, the Ambassador told Attorney General Estrada that the USG does 
not consider these cases resolved (Ref P). 
 
PROPERTY RIGHTS UNDER ATTACK 
---------------------------- 
 
¶17. (SBU) Landowners report that GON officials and local politicians 
are systematically infringing on and rescinding the property rights 
of foreign and local investors.  Weak enforcement of property rights 
and protracted court cases increasingly worry U.S. property owners 
and frighten potential investors.  Since the beginning of 2009, more 
than a dozen U.S. citizens have sought Embassy assistance to deal 
with insidious legal and extra-legal disputes (Ref Q).  Some U.S. 
landowners allege that the GON directly seeks to confiscate their 
property (Refs R, S).  Attorney General Estrada has denied that the 
GON seeks to confiscate property, and he has taken steps to 
investigate these allegations. 
 
SECTION 527 
----------- 
 
¶18. (SBU) Section 527 of the Foreign Relations Authorization Act of 
1994/1995 prohibits U.S. economic assistance or support in 
international financial institutions to any government which has not 
provided U.S. citizens adequate and effective compensation for 
confiscated property.  In the case of Nicaragua, the prohibition 
would likely affect government-to-government assistance related to 
military training and equipment, drug interdiction, and electoral 
and judicial reform, economic development, CAFTA-DR implementation, 
as well as our votes at the International Monetary Fund, the World 
Bank, and the Inter-American Development Bank.  Section 527 
authorizes the Secretary of State, as delegated by the President, to 
waive this prohibition on an annual basis provided that it is in the 
U.S. national interest. 
 
¶19. (SBU) Section 527 was amended on December 8, 2004, to base the 
waiver decision on claims registered with the Embassy before August 
1, 2005.  No new claims can be considered in determining waiver 
eligibility.  The Embassy maintains a separate database listing 22 
property claims that 16 U.S. citizens that were registered after 
August 1, 2005.  [Note: According to Nicaraguan law and as announced 
by the GON in 1998, claimants of any nationality had to have filed 
new claims before December 23, 2000, to be considered for 
compensation.  End note.] 
 
WAIVER RECOMMENDATION 
--------------------- 
 
¶20. (SBU) The primary consideration in deciding to issue a waiver 
each year is whether a waiver would be in the U.S. national 
interest.  In the case of Nicaragua, an important factor in this 
regard is that we have been able to maintain working relations with 
the GON across a spectrum of areas important to us, including trade 
and investment under CAFTA-DR, our economic and social development 
assistance programs aimed at improving the lives of the Nicaraguan 
people, productive relations with professional military and police 
forces, and progress on the war on drugs and combating terrorism. 
Should Section 527 prohibitions come into effect, our ongoing 
strategy of U.S. engagement in Nicaragua would be severely 
compromised. 
 
¶21. (SBU) Another important factor is the effort put forth by the 
GON to resolve outstanding claims.  While the number of claims 
resolved this year (43) does not meet expectations, the GON has 
slightly exceeded last year's performance.  Furthermore, Attorney 
General Estrada's establishment of a Liaison Office for U.S. Claims 
improved cooperation during the latter half of the waiver year.  We 
believe that granting a waiver to Nicaragua will keep the GON 
engaged in working with us to resolve U.S. citizen claims. 
 
SUGGESTED POINTS FOR THE 2009-10 WAIVER LETTER 
--------------------------------------------- - 
 
¶22. (SBU) We recommend maintaining the three benchmarks previously 
established.  They are as follows: 1) successful resolution of a 
substantial number of Embassy-registered claims, with particular 
attention to longstanding, complex cases; 2) resolution of property 
claims held or controlled by the GON, including CORNAP, government 
ministries, and the police; and 3) resolution of property claims 
controlled by the Army.  As ancillary points in the letter's 
narrative portion, we suggest that the Secretary encourage the GON 
to reinstate claims arbitrarily dismissed, urge the GON to avoid 
undermining the property rights of U.S. citizens who have filed 
court cases for the return of their property, and reiterate our 
position that the USG does not recognize any government effort to 
resolve claims without U.S. citizen approval of the compensation. 
 
WASHINGTON ENGAGEMENT REQUESTED 
------------------------------- 
 
¶23. (SBU) Action Request: Post recommends, as in years past, that we 
conduct a formal mid-year review of the GON's progress on meeting 
the benchmarks that the Secretary establishes.  Should there be a 
significant lack of progress on resolving claims during the first 
half of the waiver year, this review could include a visit by 
Department officials to maintain direct pressure on the GON to 
resolve U.S. citizen claims and convey USG interest in this topic. 
We suggest that a senior WHA official communicate the results of the 
mid-year review in writing to the Foreign Minister and Attorney 
General. 
 
CALLAHAN